Rethinking Patent Enforcement: Tesla Did What?

Tesla MotorsTesla Motors is causing us to rethink the value and use of patents. On June 12, Elon Musk, the electric car company’s CEO, made a bold announcement on the firm’s blog: “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.”

This sounds insane considering our current patent-litigation dynamic. Patents are often considered valuable because they allow their owner to sue alleged infringers. Some patent holders, called Non-Practicing Entities or patent trolls, have no plans to actually make the patented product or process. Instead, they prefer to lie in wait, letting someone else do the heavy lifting and then suing just as the new creation is about to take off commercially. This litigation model could have been lucrative for Telsa—which makes its new policy all the more surprising.

Patent trolls aside, Tesla’s decision seems contrary to the very purpose of a patent. Textbooks teach us that a patent rewards an inventor with a temporary monopoly on an invention that he or she might otherwise be tempted to keep secret. A definite patent term, which is usually 20 years, encourages the inventor to fully exploit the market for his or her intellectual property. Without this exclusivity, we are told, innovation would be discouraged.

Tesla’s gambit challenges this conventional wisdom. It suggests that the highest hurdle that innovative companies often face is not the theft of their ideas, but rather the development of new markets.

New motor-vehicle production is approaching 100 million units per year, and the global fleet of cars numbers approximately 2 billion. Zero-emission vehicles account for less than one percent of the world’s total new car production. There are literally billions of potential customers, and the real challenge for Tesla is to persuade them to abandon gasoline-powered vehicles for electric cars. By utilizing its ideas, Tesla’s competitors would improve the product and marketing so that all electric car manufacturers could sell more vehicles and establish new markets.

Tesla also stands to benefit if its roadside charging stations become the industry standard. Currently, Tesla has a network of 97 Superchargers across United States, so a lack of stations is an obstacle to long-distance travel in an electric car. But with other manufacturers using Tesla technology and making cars that could plug in at Tesla Superstations, Musk’s company stands to make a fortune simply from giving away its blueprints to “competitors.”

Tesla’s strategy should also cause us to rethink patent terms. Technology and software have shorter lifespans than most products. A twenty-year patent term is of little use to companies, like Tesla, in industries whose technology will be much different in a couple decades. But, such a lengthy term benefits patent trolls who can use old patents to shake down genuine innovators.

Of course, just because Tesla has decided not to sue good-faith users of its patents does not mean the company will not face litigation from patent trolls. Trolls scour the country for older patents on technology still used into today’s products, including automobiles.

Thanks to trolls, the rate of patent lawsuits is rising faster than any other type of litigation. In recent years, tech giants such as AppleApple and GoogleGoogle have spent more on patent litigation and acquisition than on research and development, resulting in less technological innovation. Tesla will no doubt continue to incur litigation costs as the trolls bring infringement lawsuits, which will necessarily divert some of its attention and resources away from product and market development.

Time will tell how well Tesla’s invitation to others to use its technology will work. The fact that Musk has announced such a bold maneuver should cause us to reevaluate our current patent system.

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